The long national estate planning nightmare brought about by the Treasury’s proposed changes to IRC Section 2704 has ended. The Treasury Department formally announced it was withdrawing the proposal in its entirety.
In “Identifying and Reducing Tax Regulatory Burdens” (dated October 2, 2017) Secretary of the Treasury Steven T. Mnuchin said the following:
After reviewing these comments, Treasury and the IRS now believe that the proposed regulations’ approach to the problem of artificial valuation discounts is unworkable. In particular, Treasury and the IRS currently agree with commenters that taxpayers, their advisors, the IRS, and the courts would not, as a practical matter, be able to determine the value of an entity interest based on the fanciful assumption of a world where no legal authority exists. Given that uncertainty, it is unclear whether the valuation rules of the proposed regulations would have even succeeded in curtailing artificial valuation discounts. Moreover, merely to reach the conclusion that an entity interest should be valued as if restrictions did not exist, the proposed regulations would have compelled taxpayers to master lengthy and difficult rules on family control and the rights of interest holders. The burden of compliance with the proposed regulations would have been excessive, given the uncertainty of any policy gains. Finally, the proposed regulations could have affected valuation discounts even where discount factors, such as lack of control or lack of a market, were not created artificially as a value-depressing device.
In light of these concerns, Treasury and the IRS currently believe that these proposed regulations should be withdrawn in their entirety. Treasury and the IRS plan to publish a withdrawal of the proposed regulations shortly in the Federal Register.
We, at Stout, are delighted with this development. The proposed changes would have undermined the definition of “fair market value,” altered established valuation methodology, and caused undue uncertainty for our clients trying to implement their estate plans. For more than 25 years, we’ve taken a rigorous, well-documented approach in our valuation processes and methodologies to ensure that our clients receive reliable opinions that can withstand scrutiny. We will continue to support regulations that are in our clients’ best interests.
Read more on the Section 2704 decision here.